ITAT Restores Rectification Appeal u/s 154 to CIT(A) to Avoid Multiplicity, Orders Re-evaluation of Capital Gain Addition [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has restored an appeal to the Commissioner of Income Tax (Appeals) after holding that issues arising from a rectification order under Section 154 of the Income Tax Act, 1961 could not be decided independently when the core quantum addition itself was already pending adjudication.

In the ITR filed by appellant, Bhavsagar Dealers Pvt. Ltd., for the assessment year 2017-18, an income of over ₹56 lakh was declared. Due to non-compliance with statutory notices, the Assessing Officer completed the assessment ex parte under Section 144 and made an addition of ₹5.45 crore by invoking Section 50C. He alleged an undervaluation of sale consideration of immovable property based on Form 26QB data.

Aggrieved by the assessment order, the assessee moved a rectification application under Section 154 contending that the addition was made on an incorrect observation. Instead of addressing the alleged mistake, the Assessing Officer proceeded to pass a rectification order disallowing indexed cost of acquisition and thereby raising a fresh demand. This rectification order was further upheld by the appellate authority, which led the assessee to approach the Tribunal.

During the hearing, it was pointed out that the very same quantum addition of ₹5.45 crore had already been set aside by a coordinate Bench of the Tribunal in a separate appeal and remanded to the appellate authority for fresh adjudication. It was contended that the rectification proceedings cannot survive when the foundational addition itself was pending reconsideration.

The Tribunal, comprising M. Balaganesh (Accountant Member) and Raj Kumar Chauhan (Judicial Member), observed that allowing parallel adjudication on rectification issues would lead to multiplicity of proceedings. The Bench found the appellate authority to be best suited for examining all interconnected issues, including those raised in the rectification proceedings.

In the interest of justice, the Tribunal consolidated the adjudication and restored the present appeal to the file of the Commissioner of Income Tax (Appeals) with a direction to consider all grounds in accordance with law. The appellate authority was also directed to adhere to the mandate of Section 250(6).

Accordingly, the appeal was allowed with the above directions.

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